The Canada Revenue Agency (“CRA”) has targeted the construction industry for several years. On numerous occasions it has successfully used the “unnamed person requirement” (“UPR”) in the Income Tax Act to get information from third parties related to construction businesses that the CRA suspects of tax evasion.
The UPR provisions of the Income Tax Act work like this. The CRA applies to a Federal Court Judge for a court order requiring an individual or a company to provide information about its customers or persons it does business with (unnamed person or persons) to the CRA. After the CRA gets this information, it uses this information to verify if the unnamed person or persons correctly reported their income and remitted the applicable goods and services tax/harmonized sales tax (GST/HST) to the CRA. These orders are pretty easy to get because the CRA only has to provide affidavit evidence that the unnamed person or persons is “ascertainable” and that the information is necessary to verify compliance by the person or persons with Canadian tax laws.
The type of information that the CRA asks for, and usually gets, is :
- a) The customers’ legal name, business or operating name, contact person, business address, postal code, and all telephone numbers on file;
- b) The customers’ business number, if known;
- c) The customers’ itemized transaction details including invoice date, invoice number, total sales amount, method of payment, and address of delivery; and,
- d) All bank account information for the customers (including transit, institution, and account numbers) from credit applications and/or otherwise maintained by the company being asked.
The CRA has successfully obtained UPR orders against big companies such as Home Depot, Rona, and Roofmart, for example. These are just a few companies that I know about off of the top of my head, but there are likely many more. CRA then uses this information to compare the amounts that the customer spent at say Home Depot or Rona, with the amount that the customer reported as income on their tax return, to determine if the customer under-reported their income. If for example, a taxpayer purchased $100,000.00 worth of construction materials but only declared $20,000.00 income, then this would probably trigger an audit.
If you have received a notice of an application for a UPR from the CRA you should contact an experienced tax attorney immediately.
If you are a business or individual who may be at risk of an audit, you should consider applying for a Tax Amnesty under the Voluntary Disclosure Program to avoid gross negligence penalties and criminal prosecution. But you have to apply BEFORE the CRA contacts you so don’t delay.
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https://taxdefencelawyers.ca/pages/contact-us